THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICE

Transcription

1 THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICE Office of the Controller and Auditor General, Samora Avenue, P.O. Box 9080, DAR ES SALAAM. Telegram: Ukaguzi", Telephone: 255(022) /8, Fax: 255(022) , Website: In reply please quote Ref.No.FA.27/249/01/2014/ th March, 2016 H.E. Dr. John Pombe Joseph Magufuli, The President of the United Republic of Tanzania, State House, P.O. Box 9120, 1 Barack Obama Road, DAR ES SALAAM. RE: SUBMISSION OF THE ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE AUDIT OF PUBLIC AUTHORITIES AND OTHER BODIES FOR THE FINANCIAL YEAR 2014/2015 In my capacity as the Controller and Auditor General, Pursuant to Article 143 of the Constitution of the United Republic of Tanzania of 1977 as amended from time to time and as defined in Section 11(4) of the Public Audit Act No. 11 of 2008, I am pleased to submit to you my Annual General Report on the Audit of Public Authorities and other Bodies for the financial year 2014/2015 for your kind consideration and onward submission to Parliament. Prof. Mussa Juma Assad CONTROLLER AND AUDITOR GENERAL

2 The Controller and Auditor General, National Audit Office, United Republic of Tanzania (Established under Article 143 of the Constitution of the URT) The statutory duties and responsibilities of the Controller and Auditor General are given under Article 143 of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time) and amplified by the Public Audit Act, No. 11 of 2008 (as amended) and Public Audit Regulations of Vision To be a centre of excellence in public sector auditing. Mission To provide efficient audit services in order to enhance accountability and value for money in the collection and use of public resources. Core Values:- Objectivity: We are an impartial organization, offering services to our clients in an objective and unbiased manner; Excellence: We are professionals providing high quality audit services based on best practices; Integrity: We observe and maintain highest standards of ethical behaviour and the rule of law; People focus: We focus on stakeholders needs by building a culture of good customer care and having competent and a motivated work force; Innovation: We are a creative organization that constantly promotes a culture of developing and accepting new ideas from inside and outside the organization; and Best resource We are an organization that values and uses public resources utilisation: entrusted to it in an efficient, economic and effective manner. Report of Public Authorities and other Bodies 2014/2015

3 TABLE OF CONTENTS LIST OF TABLES... iii LIST OF ABBREVIATIONS... iv ACKNOWLEDGEMENTS... x PREFACE... xii EXECUTIVE SUMMARY... xiii CHAPTER ONE... 1 BACKGROUND INFORMATION... 1 CHAPTER TWO... 6 TYPES AND TREND OF AUDIT OPINIONS... 6 CHAPTER THREE SUMMARY OF OUTSTANDING RECOMMENDATIONS CHAPTER FOUR SIGNIFICANT AUDIT MATTERS CHAPTER FIVE REVIEW OF STRATEGIC AND OPERATIONAL EFFICIENCY OF PUBLIC ENTITIES CHAPTER SIX POST PRIVATIZATION MONITORING AND EVALUATION. 154 CHAPTER SEVEN OTHER SIGNIFICANT AUDIT MATTERS CONCLUSION APPENDICES Report of Public Authorities and other Bodies 2014/2015

4 LIST OF TABLES Table 1: Trend of Audit Opinion... 9 Table 2: Disbursement of Loans above 50% of SACCOS Assets37 Table 3: Variances in Goods recorder in the TPA systems against TRA systems Table 4: Borrowers Using Funds for Unintended Purposes Table 5: Significant Long outstanding Accounts Receivable. 56 Table 6: Status of Outstanding Government Loans issued by Social Security Funds Table 7: Delays in Completion of Construction Projects Table 8: Efficiency in Rent Collection Table 9: Non-Revenue Water Table 10: Delays and Non Remittance of Statutory Deductions Table 11: Trend of Financial Performance of ATCL Table 12: A Four Year Comparison of Budget vs Actual Release Table 13: Profitability and Operational Efficiency of TANESCO Report of Public Authorities and other Bodies 2014/2015 iii

5 ADB ADS-B AFROSAI-E AIDS AMHS AOC ARMS ATC ATCL ATM AUWSA BAUWASA BMAF BoQ BoT CAG CAPEX CBE CDA CDR CEIR CFSs CHC CIDA CMS CMSA CNC COSTECH LIST OF ABBREVIATIONS African Development Bank Automatic Dependent Surveillance Broadcast African Organization of Supreme Audit Institutions for English Speaking Countries Acquired Immune Deficiency Syndrome Aeronautical Message Handling System Air Operator Certificate Airtime Revenue Monitoring System Air Tanzania Corporation Air Tanzania Company Limited Air Traffic Management Arusha Urban Water Supply and Sewerage Authority Babati Urban Water Supply and Sanitation Authority Benjamin Mkapa HIV/AIDS Foundation Bill of Quantities Bank of Tanzania Controller and Auditor General Capital Expenditure College of Business Education Capital Development Authority Call Detail of Records Central Equipment Identity Register Car Freight Stations Consolidated Holding Corporation Canadian International Development Agency Customs Management System Capital Markets Securities Authority Computer Numerical Control Tanzania Science and Technology Commission Report of Public Authorities and other Bodies 2014/2015 iv

6 DANIDA DAWASCO DBOT DFID DIT DMGP DMI DUCE EADB EFD EWURA GIZ GmbH GoT GVG HESLB HIV HQ IAS IATA ICAO ICD IFAC IFM IFRS IMO IMTU INTOSAI IOSA Danish International Development Agency Dar es Salaam Water and Sewerage Corporation Design Build Operate and Transfer Department for International Development Dar es Salaam Institute of Technology Dar es Salaam Maritime Gateway Project Dar es Salaam Maritime Institute Dar es Salaam University College of Education East African Development Bank Electronic Fiscal Device Energy and Water Utility Regulatory Authority Deutsche Gesellschaft for Internationale Zusammenarbeit Gesellschaft mit beschränkter Haftung Government of Tanzania Global Voice Group Higher Education Students' Loans Board Human Immunodeficiency Virus Head Quarters International Accounting Standards International Air Transport Association International Civil Aviation Organization Inland Container Depot International Federation of Accountants Institute of Finance Management International Financial Reporting Standards International Maritime Organisation International Medical and Technological University International Organisation of Supreme Audit Institutions IATA Operational Safety Audit Report of Public Authorities and other Bodies 2014/2015 v

7 IPSASs International Public Sector Accounting Standards ISA International Standards on Auditing ISSAIs International Standards of Supreme Audit Institutions KM Kilometre KOJ Kurasini Oil Jet KPI Key Performance Indicator KUWASA Kigoma/Kahama Urban Water Supply and Sanitation Authority LAPF LAPF Pensions Fund LART Loans and Advances Realisation Trust LCMS Local Control and Monitoring System LTD Limited LUWASA Lindi Urban Water Supply and Sewerage Authority MCST Ministry of Communication, Science and Technology MNH Muhimbili National Hospital MOF Ministry of Finance MOI Muhimbili Orthopaedic Institute MoU Memorandum of Understanding MSD Medical Stores Department MUCCOBs Moshi University College of Co-operative and Business Studies MUST Mbeya University of Science and Technology MWAUWASA Mwanza Urban Water Supply and Sanitation Authority MZARTC Mwanza Regional Trading Company Limited NACTE National Council for Technical Education NAOT National Audit Office of Tanzania NAPOCO National Poultry Company NARCO National Ranching Company Limited NBC National Bank of Tanzania NCAA Ngorongoro Conservation Area Authority NDC National Development Corporation Report of Public Authorities and other Bodies 2014/2015 vi

8 NECTA National Examination Council Of Tanzania NHC National Housing Corporation NHIF National Health Insurance Fund NIMR National Institute of Malaria Research NIP National Institute for Productivity NIT National Institute of Transport NSSF National Social Security Fund OUT Open University of Tanzania PA & obs Public Authorities and other Bodies PAA Public Audit Act No. 11 of 2008 PAC Public Accounts Committee PAYE Pay As You Earn PC Personal Computer PFMRP Public Finance Management Reform Programme PMG Pay Master General PPF PPF Pensions Fund PPL Pension Property Limited PPP Public Private Partnership PPRA Public Procurement Regulatory Authority PRIDE Tanzania Promotion of Rural Initiative and Development Enterprises Limited PSPF Public Sector Pension Fund PSRC Parastatal Sector Reform Commission QoS Quality of Service RAHCO Reli Assets Holding Company Limited RIF Railway Infrastructure Fund RMS Resource Mobilization Strategy SAA South African Airways SAI Supreme Audit Institution SAT South African Technical Report of Public Authorities and other Bodies 2014/2015 vii

9 SGS SHUWASA SIDA SNAO SPM SSRA SUMATRA TAFIRI TANAPA TANCIS TANESCO TBC TBS TBT TCAA TCB TCRA TEU TFDA TIC TICTS TLTC TMB TNBC TPA TPRI TR TRA TRL Société Générale de Surveillance Shinyanga Urban Water Supply and Sanitation Authority Swedish International Development Agency Swedish National Audit Office Southern Paper Mills Social Security Regulatory Authority Surface and Marine Transport Regulatory Authority Tanzania Fisheries Research Institute Tanzania National Parks Tanzania Customs Integrated System Tanzania Electricity Supplies Company Ltd Tanzania Broadcasting Corporation Tanzania Bureau of Standards Tea Board of Tanzania Tanzania Civil Aviation Authority Tanzania Cotton Board Tanzania Communication Regulatory Authority Twenty-Foot Equivalent Unit Tanzania Food and Drugs Authority Tanzania Investment Centre Tanzania International Container Terminal Services Tanzania Leaf Tobacco Company Limited Tanzania Meat Board Tanzania National Business Council Tanzania Ports Authority Tropical Pesticides Research Institute Treasury Registrar Tanzania Revenue Authority Tanzania Railways Limited Report of Public Authorities and other Bodies 2014/2015 viii

10 TSN TTCL TTMS TZS UCSAF UDA UDOM UK UNICEF URT USAID USD UTT-AMIS UTT-PID VAT WB WHC WHO WHT WMA Tanzania Standard News Papers Tanzania Telecommunications Company Ltd. Telecommunications Traffic Monitoring System Tanzania Shillings Universal Communications Service Access Fund Usafiri Dar es Salaam University of Dodoma United Kingdom United Nations Children's Emergency Fund United Republic of Tanzania United States of America International Development Agency United States Dollar Unit Trust of Tanzania - Asset Management and Investor Service Unit Trust of Tanzania - Projects and Infrastructure Development Plc Value Added Tax World Bank Watumishi Housing Company World Health Organization Withholding Tax Weights and Measures Agency Report of Public Authorities and other Bodies 2014/2015 ix

11 ACKNOWLEDGEMENTS I would like to seize this great opportunity on behalf of the National Audit Office Tanzania to extend to His Excellency, Dr. John Pombe Joseph Magufuli, the President of the United Republic of Tanzania, our warmest congratulations and to wish him every success at a time of great expectations in Tanzania. Please count on our full support as you assume the duties of the President of the United Republic of Tanzania. My heartfelt congratulations also go to the Honourable Speaker and Deputy Speaker of Parliament of the United Republic of Tanzania, Chairpersons and Honorable Members of Parliament for being elected to the legislative house. My Office promises to accord you all the necessary cooperation in achieving our common goal of building our nation. I also commend the role played by Dr. Jakaya Mrisho Kikwete, the retired President of the United Republic of Tanzania, in his enormous support which vastly contributed to the success of my Office during his tenure. My sincere appreciation goes to Development Partners who have been supporting NAOT including, but not limited to, the Public Financial Management Reform Programme (PFMRP) under the co-ordination of the World Bank (WB), the Swedish National Audit Office (SNAO), the Government of Sweden through the Swedish International Development Agency (SIDA), Department for International Development (DFID) of UK, Deutsche Gesellschaft for Internationale Zusammenarbeit (GIZ), African Development Bank (ADB), United States of America International and Development Agency (USAID), SAI of India, SAI of China, SAI of Norway, SAI of Netherlands, AFROSAI-E, Canadian International Development Agency (CIDA) and all other well-wishers who have contributed immensely towards the modernization of the audit functions in my Office by sponsoring training and providing various important working tools and technical assistance. Report of Public Authorities and other Bodies 2014/2015 x

12 I wish to thank all private audit firms that have been working with us in audits of Public Entities. Their contributions towards the success of this report are immensely valued. As well, my Office appreciates the ongoing co-operation of Boards of Directors, Accounting Officers, Senior Management and staff of all Public Entities which were subjected to our audit. Finally, I would like to take this opportunity to congratulate my staff for the excellent work done to prepare and complete this report. Their commitment and dedication in fulfilment of this task has been very inspiring. I urge them to continue upholding the same spirit to raise the banner of the Office even higher in providing efficient audit services which enhance accountability and value for money in the collection and use of public resources. Report of Public Authorities and other Bodies 2014/2015 xi

13 PREFACE It is my great pleasure and honour to present my Annual General Report on the audit of Public Authorities and Other Bodies for the financial year 2014/2015 in compliance with Article 143 of the Constitution of the United Republic of Tanzania and Section 34 of the Public Audit Act No. 11 of This report covers all significant issues noted during the audit of Public Entities for the financial year 2014/15. The report includes audit recommendations issued to Management of these entities to ensure that all the weaknesses noted during the audit are appropriately addressed. The report also covers review of the strategic and governance issues with the aim of responding to fundamental policy questions or critical challenges and business risks affecting mandates, strategies, business processes and productivity of Public Entities. Given the greater concern of the general public on the increased need for accountability, transparency and good governance; informed decisions are very vital, it is my hope therefore that, this report will assist the Government and Parliament to remind all Management of these Public Entities who have been entrusted with their stewardship to be accountable in the collection, utilization and management of the public resources, so that together we can make a difference in the lives of the citizens. Prof. Mussa Juma Assad CONTROLLER AND AUDITOR GENERAL 28 th March, 2016 Report of Public Authorities and other Bodies 2014/2015 xii

14 EXECUTIVE SUMMARY i. Introduction This executive summary highlights major issues detailed in this report which need the attention of the Government, Parliament, Boards of Directors and respective Management of Public Authorities to ensure efficiency and effectiveness in their operations. This report includes audit findings that were considered to hamper the performance of PA&oBs drawn from individual audit reports. Generally, it includes issues which are considered significant to be brought to the public, relevant Authorities and Management of audited entities for their immediate action. The highlighted issues are as follows: ii. Types and Trend of Audit Opinions During the financial year ending 2014/15, 186 Public Authorities and other Bodies were subjected to my audit. However, I issued audit opinions to only 125 Public Authorities which includes 23 relating to the previous year. Management Letters of 158 PA&oBs were finalized and discussed with respective managements. These Management Letters are included in this report. Out of the opinions issued to PA&oBs in financial year 2014/2015, three (3) were qualified and 99 were unqualified. Neither adverse nor disclaimer of opinions were issued to PA&oBs during this financial year. Report of Public Authorities and other Bodies 2014/2015 xiii

15 iii. Summary of Outstanding Audit Recommendations recommendations that were made, has noted 10 outstanding recommendations from previous years of which go as back as up to seven (7) years. These recommendations are found in chapter three (3) of this report. The prior year recommendations included; a need to establish Public Investment Fund, UDOM Assets Management, Sales of UDA shares, abandoned Flow Meters at TPA, Ownership of Azania Bancorp Limited and PRIDE Tanzania and Privatization of Southern Paper Mills. iv. Significant Audit Matters There has been long outstanding container deposits amounting to TZS million with shipping companies related to acquisition of medicines and overstocking of medical supplies worth TZS billion at Medical Stores Department (MSD). Furthermore, TFDA did not inspect imported food products worth TZS 4.64 billion due to limited capacity. We noted failure to collect debts amounting to TZS million for service levy fees by UCSAF. Significant delays were noted on construction of projects costing TZS million by six (6) public entities. Significant unpaid loans by ex-staff amounting TZS million and using in-house mortgages instead of bank mortgages in the sale of Mtoni Kijichi Houses were noted at NSSF. Also, I have noted Non-Revenue Water to the tune of TZS billion by three (3) Water Authorities and delays on construction of projects have been noted with six (6) entities. Report of Public Authorities and other Bodies 2014/2015 xiv

16 Our audit of revenue at TPA revealed that, out of 1,253 vessels which docked at Dar es Salaam port during the year, 145 vessels were missing in the revenue system. Out of these vessels, management was able to provide explanation and supporting documentation for 60 vessels, leaving 85 vessels unsupported, thus raising doubts whether the related revenue from these missing vessels was collected. Without proper control, revenue from vessels could be misappropriated. We also noted a variance of 1,742 cargo between records in TPA system against those recorded in TRA system. The difference may amount to revenue in respect of this cargo being misappropriated. There is a need for TPA and TRA to have regular reconciliation of their records to control any misappropriation of revenue. Two (2) vessels were released by operational staff instead of Revenue - Marine section and one vessel was released by marine staff but no notification was sent to the Revenue department for billing. This may escalate risks of Loss of revenue at both TPA and TRA. Sumbawanga Agricultural and Animals Feed Industry (SAAFI) was provided with a loan from TIB development bank (previous Tanzania Investment Bank) amounting to TZS 2.5 billion, which was still outstanding up to 31 December, Our further review of the Bank records indicated that M/s SAAFI as at the year end, had another outstanding balance with the Export Credit Guarantee Scheme (ECGS) of TZS billion provided by the Government through TIB. Report of Public Authorities and other Bodies 2014/2015 xv

17 Lack of proper project planning, design and Management including lack of project risk assessment prior to granting of loan are considered to be some of the reasons for this poor performance of these loans. It is unlikely that TIB and the Government will recover these outstanding loans. It is advised that loans should be given to borrowers after a thorough and detailed credit risk assessment including assessing the viability of the business for which the loan is being sought. NSSF started a project to construct a satellite town in Arumeru District- Arusha through its joint venture company M/s Hifadhi Builders Ltd. This project was expected to cost USD 3,340,589,543 equivalent to TZS 7.2 trillion. On 21 st January, 2016 both NSSF and AHEL signed an agreement to terminate implementation of this Project by mutual consent between M/s. AHEL and the Board of Trustees of NSSF. The Joint Venture Company M/s Hifadhi Builders had taken over a turnkey contract from AHEL for project design and supervision at a contract price of USD 218,087,643 equivalent to TZS billion. However, at the time the contract was terminated, a sum of TZS 43.9 billion (USD 20.1) had been paid which according to the contract, the amount was converted into a three year loan to M/s AHEL with an interest of 3 per cent per annum. Entering into Projects without confirming the availability of funds to support the projects might lead to unnecessary costs and improper use of resources on the part of NSSF. Report of Public Authorities and other Bodies 2014/2015 xvi

18 v. Review of Strategic and Operational Efficiency of Public Entities My review of performance efficiency of public entities came up with the following main issues: ATCL is in major financial distress due to deteriorating financial performance coupled with persistent losses over the past nine years. Management has not been able to devise any turnaround strategy for the Company. The privatization of the then ATC to South African Airways did not bring any solution to the problems which were facing the Company, instead, it continued overburdening it through increased management costs through management fees by the South African Airways, high maintenance costs, high lease costs and other operating costs. We noted several challenges in the operation of Tanzania Civil Aviation Authority (TCAA), where there were lack of proper governance and project management practice for ADSB project, together with inadequate capability within TCAA with respect to technology planning. This is signified by inability of the relevant personnel to cope with changes in technology. Nonreplacement of the current radar system which uses obsolete technology whose supplier is no longer supporting the system, was regarded as a major risk facing the Authority. Report of Public Authorities and other Bodies 2014/2015 xvii

19 At Tanzania Communication Regulatory Authority (TCRA), there was no any feasibility study carried out, no business case developed and no proper assessment of risks for the implementation of Telecommunication Traffic Monitoring System (TTMS). Also we noted lack of proper communication among project Key Stakeholders, this weakness has resulted into not including in the Bills of Quantities (BoQ) of the TTMS contract for some key modules responsible for revenue assurance ie. Airtime Revenue Monitoring System (ARMS). EWURA had not prepared performance review report for Electricity and Natural Gas sectors. The Authority had not prepared an actions plan to address all challenges it is facing in implementing its annual work plan. At TIC, we noted that, the Center had ineffective Monitoring and Evaluation System, lack of data Integration between TIC and TRA, Non Submission of Investor s Reports & Returns and lack of awareness by investors on activities of the Center. RAHCO had four KPIs during the year 2012/ /15, the set KPIs were partly implemented but we could not determine how the intended results will be measured, since the Company s KPIs were general statements that could not detail how the set objectives will be achieved. The Company faced several challenges in implementing its strategic plan which included failure by the concessionaire (TRL) to pay concession fees and other statutory obligations, Railway Infrastructure Fund (RIF) not being operational, capacity of RAHCO to take on-board other national initiatives Report of Public Authorities and other Bodies 2014/2015 xviii

20 and huge investments required in development of railway network. Deficiencies in setting of targets, and weak Key Performance Indicators may impair the ability of the Company to effectively achieve its set objectives. We noted that, TPA failed to achieve most of its KPIs, our review revealed that, one of its dock yard is not operational as its facility are obsolete, deteriorated beyond economic repair and some of them were removed following the development of berths 13 & 14. We also noted an expenditure of TZS 1, million which was incurred in respect of repairing and maintenance of marine crafts that has been for a long time at Mombasa port. We also noted inadequate Projects Implementation Earmarked in the Port Master Plan 2028, deficiencies in the Contract entered between TICTS AND TPA -lease Agreement to operate and manage the Container Terminal, Suspension of the Construction of Kisarawe Cargo Freight Station and deficiencies in Operationalization of Inland Container Depots and Car Freight Stations such that lack of control over ICDs/CFSs by TPA and absence of clear procedures and basis by which the cargo is allocated among ICDs and CFSs provide setbacks in the operationalization of the ICDs and CFSs. At NDC we noted the following deficiencies; non-performance of Feasibility and Resource Assessment Studies for four projects by NDC, insufficient Projects financing which hinders NDC to acquire majority shareholding in various projects since no funds are always set aside specifically for investment hence private investors contribute more funds and become the majority shareholder and automatically control the formed joint venture companies. Report of Public Authorities and other Bodies 2014/2015 xix

21 There were remarkable underutilization of Kilimanjaro Tools Company (KMTC); the factory has been operating at a very low capacity thus failing to achieve the intended goals. The factory progress reports indicate a low production capacity whereby from July 2014 to November 2015 total revenue collected was TZS 77,198, which is less compared to a turnaround plan projected sum of TZS 500,000,000. We further noted some deficiencies in the acquisition of shares of General Tyre (EA). Our review of the sale transactions for this Company revealed that, the agreed price for the acquisition was USD 1,000,000 which was supposed to be paid not later than 30 th July, 2015 if no interest was to accrue. My review noted that to date, no such funds have been released by the Government. At TANESCO we revealed that, the Company is yet to register any net profit and it has been incurring losses due to cost of production being higher compared to the selling price especially for electricity produced by Independent Power Producers (IPPs) and Emergency Power Producers (EPPs). It is in our view that, the losses are increasingly eating up the Company s capital which in turn increases liquidity risks of the Company and reduces the ability of the Company to effectively and efficiently carry out its operations, this also has a negative effect on the ability of the Company to borrow from the market. Report of Public Authorities and other Bodies 2014/2015 xx

22 vi. Post Privatization Monitoring and Evaluation I have noted inadequate post divestiture monitoring of divested public entities such that: Trade debtors amounting to TZS. 328 million under liquidated public enterprises (PEs) had not been included in the Ex-CHC accounts and that these debtors were handed to LART for further action after liquidators failed to recover the amount due to difficulties in tracing the debtors. Proceeds of PEs under liquidation recorded in audited financial statements of the principal Ex-CHC do not correspond to the realisation amounts reflected in the statement of affairs of the PEs under liquidation. I noted that, the Government through respective ministries spearheaded the privatisation process of Kiwira Coal Mine Limited and Kilimanjaro Hotel Limited contrary to the Ex-PSRC/CHC Act. Such action compromises the Government oversight role through Ex-PSRC/Ex- CHC mandates. I noted that, there was lack of proper controls over rental income and tenant bills, where 3 unsold Ex-Mwanza RTC properties after divestiture of Ex-Mwanza RTC to MZARTC have currently been rented to various tenants without any lease agreements between Ex-CHC and MZARTC and that part of rental income proceeds is utilized to settle taxes and maintenance costs of the buildings. Report of Public Authorities and other Bodies 2014/2015 xxi

23 Ex-CHC did not open and operate a special account for collections and banking of sale proceeds contrary to section 34(2) of the Public Corporation (Amendments) Act No. 16 of As reported in my previous report, UDA s un-allotted shares were sold to Simon Group at TZS 1.14 billion. Simon Group paid only 24.9 percent of the agreed sale price (TZS 285 million) into UDA CRDB account 01J There was no evidence for payment of the remaining 75.1 percent (TZS 858 million). UDA Chairman received TZS 320 million into his personal account for purported consultancy services from Simon Group Limited, the amount which is claimed by Simon Group to be part of payment of sale of UDA shares. The Government through Treasury Registrar should make a close follow up of the Government stake in UDA to ensure that public interests are not forfeited. Report of Public Authorities and other Bodies 2014/2015 xxii

24 Report of Public Authorities and other Bodies 2014/2015

25 CHAPTER ONE BACKGROUND INFORMATION 1.0 Legal Framework for Public Audit in Tanzania The Office of the Controller and Auditor General of the United Republic of Tanzania is an office established in accordance with Article 143 of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time). Sub article (5) of Article 143 of the Constitution of the URT and Section 34 of the Public Audit Act No. 11 of 2008 and Section 48 (3) of Public Procurement Act No.7 of 2011, require the CAG to audit all Public Authorities and other Bodies at least once in every financial year. The Controller and Auditor General has the mandate to conduct financial, performance, forensic or any other audit of all PA&OBs as required by Sections 26, 27, 28 and 29 of the Public Audit Act No.11 of Section 12 of the same Act empowers the CAG to make recommendations for the purpose of:- Preventing or minimizing unproductive expenditure of public moneys; Maximizing the collection of public revenues; Averting loss by negligence, carelessness, theft, dishonesty, fraud and corruption relating to public moneys and resources; and Improving economy, efficiency and effectiveness in the use of public moneys. Report of Public Authorities and other Bodies 2014/2015 1

26 Public Authorities and other Bodies prepare their financial statements under accrual basis of accounting which necessitates them to be IFRSs or IPSAS s compliant. The preparation and submission of PA&oBs financial statements for audit purposes is a legal requirement as per individual Public Authorities and other Bodies Acts, the Companies Act of 2002 and the Public Audit Act No. 11 of The Treasury Registrar Ordinance Cap 418 and Sect. 6 of the Public Corporations Act No. 16 of 1992 in relation to functions of Public Corporations, state that the Treasury Registrar has the functions and responsibilities for oversight over Public Authorities and other Bodies in collaboration with the Board of Directors of the respective entities. They do so by closely monitoring, controlling and managing the PA&OBs effectively by the way of issuing oversight directives. The CAG is required to submit his annual reports to the President of the URT by virtue of Article 143 (4) of the Constitution of the URT of Under Regulation 88 of the Public Audit Regulations, these reports are submitted to the President on 31 st March each year. Upon receipt of such reports, the President shall direct the persons concerned to submit those reports within seven days of the first sitting of the National Assembly. If the President does not take steps of submitting such reports to the National Assembly, then the CAG shall submit a copy of such reports to the Speaker of the National Assembly (or the Deputy Speaker if the office of the Speaker is vacant, or if for any reasons the Speaker is unable to perform the functions of his/her office) who shall submit the report to the National Report of Public Authorities and other Bodies 2014/2015 2

27 Assembly. The CAG report regarding PA&OBs is primarily discussed by the Parliamentary Accounts Committee (PAC) on behalf of the Parliament and report to that effect to Parliament. 1.1 Scope and Applicable Audit Standards Audit Scope and Objectives The scope of my audits covered the evaluation of the effectiveness of financial accounting systems and internal controls over the activities, examination and verification of the accompanying financial statements, performance reports and other auditing procedures considered necessary in arriving at an audit conclusion. The audits were carried out based on risk and materiality. Therefore the audit findings are confined to the extent that records, documents and information requested for the purpose of the audits were made available to me. The main objective of conducting the audit is to enable the CAG express an independent opinion on the fairness of the financial statements of the PA&OBs and whether they have been prepared, in all material respects in accordance with an accepted financial reporting framework. Particularly, the audits covered audited accounts of the periods ended, 30 th September, 2014, 31 st December, 2014 and 30 th June, Applicable Auditing Standards The National Audit Office (NAOT) is a member of the International Organisation of Supreme Audit Institutions (INTOSAI) and the African Organisation of Supreme Audit Institutions of English speaking Countries (AFROSAI-E). Therefore, the applied audit procedures were in line with the Report of Public Authorities and other Bodies 2014/2015 3

28 International Standards of Supreme Audit Institutions (ISSAI) issued by INTOSAI and International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). 1.2 Responsibilities of the Board of Directors and Chief Executive Officers The individual Boards of Directors and management of PA&oBs are responsible for the preparation and fair presentation of financial statements in accordance with International Financial Reporting standards (IFRS) or International Public Sector Accounting Standards (IPSAS). This responsibility includes: Designing, implementing and maintaining internal control systems relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or errors; Selecting and applying appropriate accounting policies; and Making accounting estimates that are reasonable in the circumstances. International Accounting Standards (IAS 1) and International Public Sector Accounting Standards (IPSAS 1) stipulate the types of financial statements to be prepared. Report of Public Authorities and other Bodies 2014/2015 4

29 1.3 Organisation and Outsourcing of Audit Work In order for my Office to effectively handle this task of auditing all the PA&OBs in the country, audits of some public entities have been contracted out to private audit firms. This is in line with Section 33 of the PAA, which empowers the CAG to authorize any person or body eligible to be appointed as an auditor under the Auditors and Accountants (Registration) Act No.33 of 1972 as amended in 1995 to conduct the audit of PA&oBs on his behalf. The authorized auditors shall be bound by the provision of the law that they shall not disclose any information which relates to the business secrets of the auditee which comes to their knowledge in the course of the audit. The audit opinion shall remain the sole responsibility of the CAG. The outsourced audits are subjected to the quality review process carried by NAOT. Report of Public Authorities and other Bodies 2014/2015 5

30 CHAPTER TWO TYPES AND TREND OF AUDIT OPINIONS 2.0 Introduction According to International Standards on Auditing (ISA) 200, the objectives of conducting audit of financial statements is to enable an auditor to express an independent opinion as to whether the financial statements are prepared in all material respects in accordance with the applicable financial reporting framework. This is achieved by designing the audit in such a way that, it will enable the auditor to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or errors. A total of 125 audit opinions were issued during this year including 102 relating to financial year 2014/2015 and 23 in respect of audits carried out for the financial 2013/14 whose matters had not been reported in the previous year s report. Management Letters of 158 entities, including 23 relating to the financial year 2013/2014 out of 186 entities and their outcomes are included in this report. Absence of Board of Directors to adopt the financial statements, and in one case improper override of Board mandate to meet that led to non-approval of Financial Statements; lack of funds to undertake audit assignments for PA&oBs who cannot afford to pay audit fees and change of basis of preparing financial accounts from International Financial Reporting Standards (IFRS) to International Public Sector Accounting Standards (IPSAS) in some of entities caused delays in completion of the remaining 51 audits. Report of Public Authorities and other Bodies 2014/2015 6

31 Analysis of the audit opinion issued to the PA&oBs during the financial year 2014/2015 is shown in Appendix I. 2.1 Types of Audit Opinion Issued Unmodified Opinion An unmodified opinion is expressed when the auditor concludes that the financial statements of an audited entity give a true and fair view or are presented fairly in all material respects in accordance with the applicable financial reporting framework. In the year under review, 99 unmodified opinions were issued to PA&oBs in the financial year 2014/ Modified Opinions Qualified Opinion A qualified opinion is issued when: (a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or (b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive. During the year under review, 3 entities were issued with qualified opinion to PA&oBs. Report of Public Authorities and other Bodies 2014/2015 7

32 Adverse Opinion An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that, the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. During the year under review, no entity was issued with an adverse of opinion Disclaimer of Opinion The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. During the year under review, no entity was issued with a disclaimer of opinion Emphasis of Matter Paragraphs in the Auditor s Report If the auditor considers it necessary to draw users attention to a matter presented or disclosed in the financial statements that, in the auditor s judgment, is of such importance that it is fundamental to users understanding of the financial statements, the auditor shall include an Emphasis of Matter paragraph in the auditor s report provided the auditor has obtained sufficient appropriate audit evidence that the matter is not materially misstated in the financial statements. Such a paragraph shall refer only to information presented or disclosed in the financial statements. Report of Public Authorities and other Bodies 2014/2015 8

33 2.2 Trend of Audit Opinion Analysis of trend of audit opinions issued to Public Authorities and other Bodies for the 4 consecutive years from 2011/2012 to 2014/2015 is as follows: Table 1: Trend of Audit Opinion Annual General Report Category of Opinion Financial Year 2011/ / / /2015 Unqualified * 99 Qualified Disclaimer Adverse Total *including 23 reports which were not included in previous report. Report of Public Authorities and other Bodies 2014/2015 9

34 CHAPTER THREE SUMMARY OF OUTSTANDING RECOMMENDATIONS 3.0 Introduction This chapter provides a summary of follow-ups of outstanding recommendations from the previous year s audit report which were either partly implemented or not implemented at the time of preparing this report. 3.1 Responses to Previous Year s Audit Report I received the Government responses prepared by the Pay Master General (PMG) on the previous Annual General Report in June I appreciate the effort deployed by PMG in responding to my reports and providing action plan on implementation of these audit recommendations. My review of the responses has shown that most of the outstanding recommendations are in progress for implementation and therefore a great attention is required towards implementing these outstanding audit recommendations in order for Public Entities management to be accountable on the use of public resources. I would like to reiterate my previous recommendations which have not fully been addressed or have partly been addressed by the Government, Parliament, Boards of Directors and Chief Executive Officers of the Public Entities as follows: Report of Public Authorities and other Bodies 2014/

35 Outstanding Recommendations for the year 2008/2009 A Need to establish a Public Investment Fund In Tanzania, most of the public entities face the problem of under capitalization which hinders them from meeting their operational objectives. The Government should establish a Public Investment Fund to overcome these challenges. I still urge the government to speed up the process of establishing the Public Investment Fund as promised PSPF Loan TZS.51.1 Billion to HESLB PSPF loan of TZS 51.1 billion given to Higher Education Student s Loans Board (HESLB) has not been re-paid for more than nine (9) years. The Government should ensure that the outstanding loan both principal and interest is repaid to avoid any further costs in terms of interest and penalties Outstanding Recommendations for the Year 2010/2011 Lack of Agreement on Plot No Mbezi Beach by NDC National Development Corporation (NDC) does not have a rental agreement with the current tenant of the property, Messrs Avignon Education Foundation the owners of IMTU whose agreement with Consolidated Holdings Corporation (CHC) expired in August Vignan Education Foundation refused to accept the terms of the agreement drafted by NDC which inter alia contained a monthly rent of TZS.60 million determined by a professional valuer. NDC has taken this matter to Court. The Government formed a technical committee to review the matter whose outcome has been in vain. I reiterate my recommendation that NDC should make close follow up to ensure the matter is resolved. Report of Public Authorities and other Bodies 2014/

36 Assets Management at UDOM Social Security Funds (PPF, PSPF, LAPF, NSSF and NHIF) spent a sum of TZS billion in the construction of some of the buildings at the University of Dodoma (UDOM), under contract terms of Design, Build, Own and Transfer after 10 years. The buildings are not in the books of the University of Dodoma. PMG s response that the buildings will be recorded in the books of account of UDOM has so far not been implemented by UDOM since 2013/14 due to several reasons. I reiterate my recommendation that transfer needs to be formally effected to facilitate recognition of the buildings in UDOM books of account. Outstanding Recommendations for the year 2011/2012 Liquidity Problems at Tanzania Broadcasting Corporation Tanzania Broadcasting Corporation (TBC) has consistently been reporting operating losses. I also noted that the Corporation is technically insolvent and largely depends on Government financing to meet its operational needs and obligations as and when they fall due. Management should devise a strategy to mobilize resources in order to sustain its operations Usafiri Dar es Salaam (UDA) Sale of UDA Shares UDA Board of Directors sold the un-allotted shares in UDA without Government approval. UDA was valued at TZS per share in October 2009 and TZS per share in November However, the Board of Directors of UDA gave a 60 percent discount on the value of the shares to the prospective investor (based on the October 2009 valuation) without any Report of Public Authorities and other Bodies 2014/

37 the prospective investor (based on the October 2009 valuation) without any clear basis. The PMG has responded that the Government does not recognize the whole process of selling the un-allotted shares in UDA. However, the Government is in the process of selling its 49 percent shares in UDA and has prepared a draft Cabinet paper regarding the same. The response does not stipulate what will happen to the shares which were sold and action taken against the Board of Directors of UDA. This recommendation has not been implemented as there is no way an unjustifiable transaction can be blessed by the Cabinet of Ministers Confirmation of the Amount Paid by the Purchaser The contract for share subscription dated 11 th February, 2011 indicated that the investor (Buyer) was to pay a sum of TZS 1.14 billion consideration for the purchase of all un-allotted shares of UDA. The investor paid a sum of TZS 285 million into account 01J at CRDB Bank belonging to UDA. There have been no further payments by the investor in respect of the purchase of UDA shares. The Chairman admitted receiving TZS 320 million in his personal account from the investor as consultancy fees for the services he claimed to have provided to the investor which raises a serious conflict of interest. Since the sale of un-allotted shares of UDA is not recognised by the Government, the Government should seize control of UDA but also refund the part considered received by UDA. Report of Public Authorities and other Bodies 2014/

38 Outstanding Recommendations for the year 2012/2013 Abandonment of Flow Meters at TPA Tanzania Ports Authority (TPA) installed flow meters at Tanga and Dar es Salaam Ports purposely to control loss of revenue from oil consignments which enter the country. However, these flow meters were stopped by the Chief Executive Officer of Weights and Measures (WMA) claiming that they were not accurate. TPA had to go back to the manual system of measuring the volumes of fuel, i.e. dipping using a measuring stick which is subject to errors in terms of measurements, the situation which has impact on the accuracy of collection of taxes by TRA as well as TPA revenue. I reiterate my recommendation that TPA has to use the flow meters to ensure that both TPA and TRA collect revenue and taxes respectively based on correct measurements of the fuel consignments Azania Bank Limited Azania Bank Limited (formerly 1 st Adili Bancorp Limited) is a bank established in The major shareholders of the bank are National Social Security Fund (NSSF) 36 percent, PPF Pensions Fund (PPF) 30 percent, Public Service Pension Fund (PSPF) 12 percent, LAPF Pensions Fund 14 percent, East Africa Development Bank Limited (EADB) 2.3 percent, Staff and other minority shareholders with 1.4 percent. The Pension Funds collectively own 91 percent of the paid up share capital of Azania Bank Limited. Report of Public Authorities and other Bodies 2014/

39 This implies that the Pension Funds have a controlling interest over the operations of this bank. Since all the Pension Funds are owned by the government through the Treasury Registrar, then by virtue of this relationship, Azania Bank is indirectly owned by the Government through Pension Funds. Therefore Azania bank is supposed to be under the control of the Treasury Registrar and therefore required to submit its financial statements for audit pursuant to Article 143 of the Constitution of URT and Section 9(a) iii & iv of the Public Audit Act No. 11 of Privatization of Southern Paper Mills (SPM) Southern Paper Mills (SPM) was sold to Rai Group Ltd through privatization. The Assets Sale Agreement between Parastatal Sector Reform Commission (PSRC) and Rai Group stipulated that the agreed price of USD 26 million shall be paid in the following manner; USD 1 million on the date of signing the agreement, USD 3 million to be deposited in the escrow account and USD 22 million to be used by Purchaser to (i) invest in the Company in the first two years (USD 16.2 million) and (ii) USD 5.8 million in the third year. It was further agreed that the amount deposited in the escrow account was to be withdrawn by the investor upon making a cumulative investment of USD. 22 million. Considering the fact that USD 3 million deposited in the escrow account is recoverable by the investor and USD 22 million will be withdrawn by the buyer and invested in SPM, this leaves only USD1 million to be the actual Asset Sales Price for SPM. We noted that no consideration Report of Public Authorities and other Bodies 2014/